Entity Tax Return

Topic 8 Entity Tax Return: Check Figures C:11-62

Healthwise Medical Supplies Company Problem C:11-62

Form 1120S, Page 1 -

Total income, line 6: $4,130,000

Total deductions, line 20*: $2,235,440

You should have values on the following lines: 1a, 1b, 1c, 2, 3, 6, 7, 8, 9, 11, 12, 13, 14, 16, 19, 20, and 21. Do not complete lines 22-27.

*Attach a schedule to the tax return showing the items and amounts for line 20, other deductions.

Be sure you are using Form 1120S and not Forms 1120 or 1065.

Remember to use 2019 tax forms. Points will be deducted for 2018 or 2020 forms. Forms can be located at www.irs.gov. Use the “find forms” or search feature. Depending on the time of year, the 2019 forms may be in the “prior year” section.

Form 1120S, Page 2, Schedule B

Answer lines 1-2 based on the information provided in the problem.

Answer no to all items 3-11. If a field does not need to be completed, leave it blank. Points will be deducted for failing to complete this schedule.

Form 1120S, Pages 3 and 4 (i.e., Schedule K) –

You should have amounts on the line numbers: 1, 5a, 5b, 8a, 11, 12a, 12b, 12d (include type of item), 16a, 16c, 16d, 17a, 17b, and 18. Note: Line 1 should be the same as line 21 from page 1.

Line 17a should be the investment income items added together. Review the items on page 3 of Sch. K to determine the amount. For line 17b, the amount is provided in the textbook problem.

Line 18 should be $2,497,560.

Form 1120S, Page 4 (Schedule L) –

Schedule L – This is the balance sheet copied directly from the case in the textbook. Remember the assets should equal the liabilities and capital. Complete the values for the beginning and end of the year.

Note: Use column (a) for any items where you may have subtotals, such as net accounts receivable or plant assets. For example, line 10a should be $1,600,000 in column (a) and line 10b should be $228,640 also in column (a) with the net result reported on line 10b in column (b) of $1,371,360. The items from column (b) are added together (or subtracted, as applicable) to get your total assets, liabilities, and equity.

In the liabilities/equity section, lines 22 and 24, you need to break out the capital stock from the retained earnings. In the textbook problem, the total capital account balances are provided for both shareholders; however, the total is for both capital stock and retained earnings. This information is provided in the details of Problem C:11-62.

Form 1120S, Page 5 (Schedules M-1 and M-2) –

Schedule M-1 (optional and for extra points)– use the information from the problem to complete this section. Line 8 should be the same net income you report on Page 3, line 18. Line 4 should be $2,499,560.

Do not complete Schedule M-2.

Form 1120S, Schedule D –

Complete the Schedule D for Form 1120S. Use the boxes on line 10 to report the information applicable to the capital transaction, as provided in the problem.

Form 1120S, Form 1125-A –

You should have values on lines 1, 2, 6, 7, and 8. Check the applicable boxes for lines 9a, 9e, and 9f.

The information to calculate cost of goods sold is found in the problem. Be sure not to double count any expenses you report on 1125-A on page 1 of Form 1120S.

Form 1120S, Form 4562 –

Report the Sec. 179 deprecation for the entity, as provided in the problem. Follow the form in Part 1 to complete this portion.

Complete Part III, line 17 for the non-Sec. 179 deprecation for the current tax year.

Part IV - Be sure to complete any other relevant lines in this section.

Form 1120S, Schedule K-1 –

You should have amounts in the same boxes as you reported on the Schedule K (pages 3 and 4 of Form 1120S).

For lines 12, 16, and 17, be sure to include both the amounts and the applicable code. The codes are located on page 2 of the Sch. K-1 form.

You are only required to prepare the Schedule K-1 for Leisa. It is okay to ignore the second shareholder for purpose of this project.

Leisa is an individual. She has owned 30% of the S-corporation interest all year. See the tax return project instructions for her address and social security number.

Herman and Leisa Bailey

Form 1040 –

Taxable income, line 11b: $752,288a Total refund applied, line 21: $20,101 (use 2019 tax tables)b,c

______

a For purposes of this assignment, ignore the Qualified Business Income Deduction. It is a topic beyond the scope of this course and will be covered in the Corporation Taxation (ACC-668) course. In addition, these taxpayers do not qualify for it because their taxable income exceeds the maximum threshold. b Ignore the 3.8% net investment income tax for high-wealth individuals. c Remember to take into consideration the items subject to the capital gain tax preference rate when calculating the total tax liability.

Schedule A –

For line 9, include the investment interest expense from the S-corporation.

On line 11, remember to include the cash contributions from both the taxpayers and the amount allocated from the S-corporation.

Form 8949 -

Line 2h (Part II), $14,000

Schedule D –

Line 15, $217,200

Schedule E –

Line 32, $358,368

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